European shares eke out gains ahead of ECB's rate decision

© Reuters. The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, September 7, 2022. REUTERS/Staff

By Shreyashi Sanyal

(Reuters) -European stocks inched up on Thursday ahead of what could be the European Central Bank's biggest-ever interest rate hike, with shares of miners and banks leading the gains.

Markets are yet to see by how much the ECB will raise its benchmark rate, as the central bank debates between a 50 basis point or 75 basis point increase, with expectations now leaning towards a bigger increase but not with full conviction.

"There are two camps - the 75bps hike camp believes that the ECB should hike relatively faster to tame the surging inflation in the euro zone. The 50bps hike camp argues that a 75bps hike is too much for an economy that faces a terrible recession amid the worsening energy crisis," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

The pan-European STOXX 600 index rose 0.1% by 0826 GMT, with cyclical sectors including miners, banks and insurers gaining about 0.9% each.

The basic resources sector attempted to recover from declines of more than 2% on disappointing China trade data on Wednesday, amid worries of metals demand.

The STOXX 600 is down 0.7% so far this week and is set to end its fourth week in the red.

Euro zone bonds edged lower, with Germany's 10-year government bond yield falling a little over 1 basis point. [GVD/EUR]

With inflation hitting all-time highs and Russia turning off the taps indefinitely to the biggest natural gas pipeline to Europe, investors have taken risk off the table on worries of soaring energy prices and a cost of living crisis.

European retailers shed 2.0%, with Swedish retailer H&M and Zara-owner Inditex (BME:ITX) falling after U.S. peer American Eagle Outfitters (NYSE:AEO) Inc missed second-quarter profit estimates late on Wednesday.

"Honestly, if you are paying more for your energy, you have got less disposable income which means essentially that retailers are likely to have less revenue coming in because consumers have got less money," said Michael Hewson, chief market analyst at CMC Markets UK, London.

Associated British Foods (OTC:ASBFY) slipped 7.4%, after it warned of lower profit next year, as its Primark fashion business struggles with rising costs and surging inflation hits demand.

Finnish forestry group Stora Enso (OTC:SEOAY) rose 1.3% after it said it had agreed to buy Dutch packaging company De Jong for an enterprise value of 1.02 billion euros ($1.02 billion).